[ROCKMAN]

T - OK so again for clarity: define a "marginal oil producer". Without knowing who are marginal producers we can't tell who the targets are. Thanks in advance.

[tita]

In the beginning of 2015, I had the same feeling that the "low" price situation wouldn't last 8 years, but a lot less (1-2 years), before a rally takes place again for prices to come back around 100$. A lot of things happened in-between that changed my mind. Even if we are at a some kind of balance now (prices stayed in the 45$-50$ range for months), I would not bet for a rally in the coming months.

First, US LTO production decreased indeed. Not because active producing wells were too expensive to run, but because new wells from marginal spots were too expensive drill. Nonetheless, activity didn't stop and new LTO production continue to arrive, just not enough to balance the depletion of legacy wells.

We saw a lot of production coming online, either from projects started in the high prices period (KSA did a lot of work) or from geopolitical change (Iran). And there is more coming soon (offshore, DW, Lybia, pre-salt).

Time is the key. The production don't react instantly to price variation, but takes sometimes years to be affected.

[ROCKMAN]

tita - Here's the basic question, the answer to which indicates what may or may not happen to future oil prices.

What has the greater influence on oil prices: the capability of the global economy to purchase oil or the production CAPACITY of the oil producers? And I use capacity instead of rate because the KSA could have put their excess capacity into the market when oil was $100/bbl as it's doing today.

Consider this this: in 1998 the world was consuming about 75 mm bopd. Global per capita oil consumption has been on a plateau more or less for 30+ years. And oil in 1998 was going for less than $20/bbl. So it seems that some assumptions for future price predictions are being made on future production rates. Obviously that wasn't the case in 1998 when production was about 20% lower and the oil price was 50% lower then current.

It seems if someone wants to play the oil price prediction game they should be studying global economic trends more then oil production trends.

[tita]

What has the greater influence on oil prices: the capability of the global economy to purchase oil or the production CAPACITY of the oil producers?

Both play together, this is basic demand/supply in a free market (capacity not artificially capped to adjust demand). When the price was increasing in the beginning of the 2000's, was it because of the healthy global economy leaded by China hungry for oil? Or was it from the depressed economy of the end of the 90's which did not gave enough incentives to increase oil production capacity? Probably both, but they don't play on the same time scale.
We increased (and still do) the production capacity after that. Thanks to the policies brought to heal the global economy which helped it to put $trillions in the oil sector (also, capacity was capped again). But when consumption growth waded, we returned quickly in the 1986-1999 situation of an oil glut.

So, sure, it's the global economy that set production capacity and consumption capacity. But production has some physical constrains that makes it more and more difficult to expand (i.e. need more money). At some point, the global economy won't be able to increase both consumption and capacity. We may call it peak oil or peak demand, but it's the two faces of the same coin.